When a debtor becomes bankrupt, a trustee must be appointed to represent the interest of the creditors and the debtor. A trustee is required in all personal bankruptcy cases and sometimes in Chapter 11 business cases if impartial control of the estate is needed.
The permanent trustee is assigned at the meeting of the creditors or the 341 meeting. The court is authorized to order an earlier appointment if the estate needs immediate protection from creditors actions.
The trustee is allowed to investigate the debtor’s financial affairs and manage their estate, including litigation. The trustee will make recommendations to the court regarding the debtor’s discharge.
In a Chapter 7 bankruptcy, the trustee’s principal duties are to collect property of the estate, liquidate it and distribute the proceeds to creditors.
Under Chapter 11, reorganization instead of liquidation the usual practice to not to assign a trustee. Instead, the debtor assumes the function of the trustee and stays within the court-appointed repayment plan.
An immediate appointment of a trustee is used in Chapters 12 and 13 debt adjustment bankruptcies. The debtor will continue to operate the business or farm under the supervision of the trustee. The trustee duties also include investigating the debtor’s financial affairs and supervision of debtors activities.
The trustees in the bankruptcy cases are appointed from an approved panel that the U.S. Trustee has chosen and qualified to serve. The general requirements for a trustee are residency and competence and to be a “disinterested person,” excluding creditors, employees, etc.
The Attorney General prescribed more qualifications for trustees, such as honesty, impartiality, professional qualification such as a law degree or CPA and requirements of general competence and experience. In addition to qualifying, a trustee must post a bond to guarantee faithful performance of duties. A trustee can be removed due to conflict of interest, misconduct, incompetence or violation of duty.
If you are considering filing bankruptcy to get your financial situation under control, contact a Houston bankruptcy attorney to find out what is the best course of action for you.